Just compiling some basic eurozone info, for my own ease of reference when blogging. I hope they are useful to someone else too.
The numbers come from the EU Economic Forecast Spring 2005 (the 2005 and 2006 Data are projections)
GDP % Change y-o-y
..................2003..............2004.... ..........2005............2006
Greece.............. 4.7 ............ 4.2 ................ 2.9 ........... 3.1
Ireland .......... 3.7 . ...... ..... 5.4 ................ 4.9 ..... ..... 5.1
Italy............... 0.3 ............. 1.2 ................ 1.2 .......... 1.7
Portugal............ -1.1 ............. 1.0 ................ 1.1 ........... 1.7
Spain.............. 2.5 ............. 2.7 ................ 2.7 ........... 2.7
CPI % Change y-o-y
..................2003............ 2004..............2005...........2006
Greece......... 3.4 ............. 3.0 .............. 3.2 ........... 3.2
Ireland......... 4.0 ............. 2.3 ............. 2.1 ............ 2.4
Italy............. 2.8 ............ 2.3 ............. 2.3 ............ 2.1
Portugal ...... 3.3 ............. 2.5............. 1.3 ............ 1.1
Spain ......... 3.1 .............. 3.1 ............ 2.9 ........... 2.7
Balance of Payments CA % GDP
..................2003.............2004................2005............2006
Greece........... -8.3............ -6.9 ............... -6.3.......... -5.6
Ireland............ -1.4 ........... -1.3 ............... -1.1 ......... -1.4
Italy............. -0.8 ........... -0.4 .............. -0.5 ............ -0.4
Portugal........ -6.0 ........... -7.7 ................-7.7 ............. -7.5
Spain............ -3.3 .......... -5.0 ................ -5.7 ............. -6.2
Govt Finance Balance % GDP
..................2003.............2004................2005.............2006
Greece.........-5.2.............-6.1................. -4.5 ............ -4.4
Ireland......... 0.2 ............ 1.3 ................. -0.6 ............ -0.6
Italy............ -2.9 ........... -3.0 ................. -3.6 ........... -4.6
Portugal........ -2.9 ........... -2.9 ................ -6.8 .......... -4.7
Spain............ 0.3 ........... -0.3 ................ 0.0 ........... 0.1
Unemployment % of Labour Force
..................2003.............2004................2005.............2006
Greece.......... 9.7............ 10.3 ............... 10.5 ........... 10.3
Irelannd......... 4.6 ............ 4.5 ................10.4 ........... 10.3
Italy............. 8.0............. 7.8................. 7.7 ............. 7.5
Portugal......... 6.3............ 6.7 ................ 7.0 ............. 7.0
Spain........... 11.3........... 10.8................. 7.7 ............. 7.5
Govt Debt % of GDP
..................2003.............2004................2005.............2006
Greece......... 109.3 .......... 110.5 .......... 110.5 ........... 108.9
Ireland........... 32.0 .......... 29.9 ............ 29.8 ..............29.6
Italy............ 106.3 .......... 105.6 ........... 105.6 ............ 106.3
Portugal......... 60.1............ 61.9............. 66.2 ............. 68.5
Spain............. 51.4 ........... 48.9 ............ 46.5 ............ 44.2
Saturday, June 11, 2005
Eurozone Vital Statistics I
Just compiling some basic eurozone info, for my own ease of reference when blogging. I hope they are useful to someone else too.
The numbers come from the EU Economic Forecast Spring 2005 (the 2005 and 2006 Data are projections)
GDP % Change y-o-y
..................2003..............2004..................2005.................2006
France............ 0.5 ............ 2.3 ................ 2.0 ........... 2.2
Germany......... -0.1 ...... ..... 1.6 ................. 0.8 ..... ..... 1.6
Belgium...... .... 1.6 ............ 2.3 ................ 2.4 ............ 2.6
Netherlands....... -0.9 ............ 1.3 ................ 1.0 ............ 2.0
CPI % Change y-o-y
..................2003............ 2004..............2005...........2006
France.......... 2.2.............. 2.3 ............. 1.9 ........... 1.8
Germany....... 1.0 ............. 1.8 ............. 1.3 ............ 1.1
Belgium........ 1.5 ............. 1.9 .......... .. 2.0 ........... 1.8Netherlands.... 2.2 ............. 1.4 .......... .. 1.3 .......... -3.0
Balance of Payments CA % GDP
..................2003.............2004................2005............2006
France.......... 0.2 ............. -0.7 .............. -1.3 ........... -1.5
Germany........2.4 ............. 3.8 ................ 4.1 ............ 4.4
Belgium.........3.1 ............. 2.5 ................ 2.3 ............ 2.6
Netherlands.....2.7 ............. 3.2 ................ 3.3 ............ 3.9
Govt Deficit % GDP
..................2003.............2004................2005.............2006
France...........-4.2.............-3.7................-3.0............. -3.4
Germany........ -3.8 ........... -3.7 .............. -3.3 ............ -2.8
Belgium......... 0.4 ............. 0.1 ............. -0.2 .............. -0.6
Netherlands..... -3.2 ...........-2.5 .......... -2.0.2 ............ -1.6
Unemployment % of Labour Force
..................2003.............2004................2005.............2006
France........... 9.5............. 9.6 ................ 9.4 ............. 9.1
Germany........ 9.0 ............ 9.5 ................ 9.7 ............. 9.3
Belgium.......... 8.0.............7.8................. 7.7 ............. 7.5
Netherlands...... 3.8.............4.7................ 5.2 ............. 5.0
Govt Debt % of GDP
..................2003.............2004................2005.............2006
France........... 63.9...........65.6 ................66.2..............67.1
Germany........ 64.2............ 66.0..............68.0 .............68.9
Belgium..........100.0...........95.6.................94.9 ...........91.7
Netherlands.......... 54.3........ 55.7.............. 57.6 ........ 57.9
The numbers come from the EU Economic Forecast Spring 2005 (the 2005 and 2006 Data are projections)
GDP % Change y-o-y
..................2003..............2004..................2005.................2006
France............ 0.5 ............ 2.3 ................ 2.0 ........... 2.2
Germany......... -0.1 ...... ..... 1.6 ................. 0.8 ..... ..... 1.6
Belgium...... .... 1.6 ............ 2.3 ................ 2.4 ............ 2.6
Netherlands....... -0.9 ............ 1.3 ................ 1.0 ............ 2.0
CPI % Change y-o-y
..................2003............ 2004..............2005...........2006
France.......... 2.2.............. 2.3 ............. 1.9 ........... 1.8
Germany....... 1.0 ............. 1.8 ............. 1.3 ............ 1.1
Belgium........ 1.5 ............. 1.9 .......... .. 2.0 ........... 1.8Netherlands.... 2.2 ............. 1.4 .......... .. 1.3 .......... -3.0
Balance of Payments CA % GDP
..................2003.............2004................2005............2006
France.......... 0.2 ............. -0.7 .............. -1.3 ........... -1.5
Germany........2.4 ............. 3.8 ................ 4.1 ............ 4.4
Belgium.........3.1 ............. 2.5 ................ 2.3 ............ 2.6
Netherlands.....2.7 ............. 3.2 ................ 3.3 ............ 3.9
Govt Deficit % GDP
..................2003.............2004................2005.............2006
France...........-4.2.............-3.7................-3.0............. -3.4
Germany........ -3.8 ........... -3.7 .............. -3.3 ............ -2.8
Belgium......... 0.4 ............. 0.1 ............. -0.2 .............. -0.6
Netherlands..... -3.2 ...........-2.5 .......... -2.0.2 ............ -1.6
Unemployment % of Labour Force
..................2003.............2004................2005.............2006
France........... 9.5............. 9.6 ................ 9.4 ............. 9.1
Germany........ 9.0 ............ 9.5 ................ 9.7 ............. 9.3
Belgium.......... 8.0.............7.8................. 7.7 ............. 7.5
Netherlands...... 3.8.............4.7................ 5.2 ............. 5.0
Govt Debt % of GDP
..................2003.............2004................2005.............2006
France........... 63.9...........65.6 ................66.2..............67.1
Germany........ 64.2............ 66.0..............68.0 .............68.9
Belgium..........100.0...........95.6.................94.9 ...........91.7
Netherlands.......... 54.3........ 55.7.............. 57.6 ........ 57.9
Cyclical Deflation Coming?
Sometimes it is easy to forget that there is such a thing as a business cycle. At the same time it is never easy to determine where exactly we are in the cycle. Europe and Japan don't help here, since ongoing economic problems make the trend line relatively flat (in the eurozone case) and growth fairly volatile (the Japanese one). Beyond this there are the Anglo-saxon economies (US, UK, Australia) and China. All of these have had strong - above par - growth in rcent years, but at the Anglo Saxon end inflation and interest rates have been low by historic standards. So what will happen when things finally slow down. Andy Xie has little doubt, we will get a bout of cyclically induced deflation:
The Anglo-Saxon consumer debt and Chinese overcapacity will likely become the main factors in causing cyclical deflation as the current cycle turns down. Ironically, Anglo-Saxon consumer debt would mainly exert deflationary pressure on its trading partners. Because these economies have huge current account deficits, they could export deflation through currency depreciation. Cutting interest rates is effective in pushing down currencies for economies with current account deficits, as foreign investors are less willing to buy their assets.
The economies with big current account surpluses and export exposure to these Anglo-Saxon economies would be at more risk of experiencing some cyclical deflation. Most Asian economies fall into this category. In addition, they compete against China. As China’s overcapacities push down its domestic prices, their export prices could follow.
China may be most vulnerable to cyclical deflation. It faces overcapacity in manufacturing, infrastructure, and property in addition to the risk of declining property prices. It is still too early to calculate accurately China’s overcapacity. What we know is that China’s fixed investment has risen from US$343 billion in 1998 to an estimated US$1 trillion in 2005.
I broadly agree with this picture. It is very difficult to see with any degree of certainty the evolution of the Chinese economy, but the UK is clearly already slowing down, and it seems clear that when the housing market finally peaks the US will follow, that in itself will initiate a chain reaction in China which is heavily dependant on exports to these destinations. The UK for example had a trade deficit with China in 2004 of 13.6 billion euro ($16.5 billion approx). At the same time Chinese import penetration in the eurozone is growing significantly, and there will be increasing political pressures to reduce the growing negative balance here.
When the inevitable slowdown comes, disinflation pressure in the Anglo Saxon world will be strong. This may, as Xie speculates, produce downward pressure on the dollar and the pound, but since there are definite limits to the ability of the euro to rise, the outcome is far from clear. By this stage the renminbi may be floating, but were this to be the case it would only fuel further the excess capacity driven price deflation inside China. All in all, Xie's conclusions seem inescapable.
The Anglo-Saxon consumer debt and Chinese overcapacity will likely become the main factors in causing cyclical deflation as the current cycle turns down. Ironically, Anglo-Saxon consumer debt would mainly exert deflationary pressure on its trading partners. Because these economies have huge current account deficits, they could export deflation through currency depreciation. Cutting interest rates is effective in pushing down currencies for economies with current account deficits, as foreign investors are less willing to buy their assets.
The economies with big current account surpluses and export exposure to these Anglo-Saxon economies would be at more risk of experiencing some cyclical deflation. Most Asian economies fall into this category. In addition, they compete against China. As China’s overcapacities push down its domestic prices, their export prices could follow.
China may be most vulnerable to cyclical deflation. It faces overcapacity in manufacturing, infrastructure, and property in addition to the risk of declining property prices. It is still too early to calculate accurately China’s overcapacity. What we know is that China’s fixed investment has risen from US$343 billion in 1998 to an estimated US$1 trillion in 2005.
I broadly agree with this picture. It is very difficult to see with any degree of certainty the evolution of the Chinese economy, but the UK is clearly already slowing down, and it seems clear that when the housing market finally peaks the US will follow, that in itself will initiate a chain reaction in China which is heavily dependant on exports to these destinations. The UK for example had a trade deficit with China in 2004 of 13.6 billion euro ($16.5 billion approx). At the same time Chinese import penetration in the eurozone is growing significantly, and there will be increasing political pressures to reduce the growing negative balance here.
When the inevitable slowdown comes, disinflation pressure in the Anglo Saxon world will be strong. This may, as Xie speculates, produce downward pressure on the dollar and the pound, but since there are definite limits to the ability of the euro to rise, the outcome is far from clear. By this stage the renminbi may be floating, but were this to be the case it would only fuel further the excess capacity driven price deflation inside China. All in all, Xie's conclusions seem inescapable.
Friday, June 10, 2005
China and India Compared
New Economist has an interesting and highly relevant post on this topic:
"China and India are the next global superpowers, but they have taken very different development paths. It is conventional wisdom that China - fuelled by huge flows of foreign direct investment - is on the faster track. But not all agree."
"China and India are the next global superpowers, but they have taken very different development paths. It is conventional wisdom that China - fuelled by huge flows of foreign direct investment - is on the faster track. But not all agree."
Turkey Continues Its Measured Rate Policy
But unlike the US, this policy is taking rates sytematically downwards. Turkey's economy seems to be surviving the trauma of the French and Dutch referendum votes nicely. In fact Turkey remains the major success story in the ambit of the EU economies. Trend growth seems to be around 7% and inflation is falling significantly - to an annual rate of about 5.8% last month. The big area of difficulty is unemployment, with the young growing population meaning large numbers of people enter the labour market each year.
Turkey has enjoyed an impressive macroeconomic turnaround in the past four years, with accelerating economic growth and declining inflation rates, which has raised per capita income from US$2,160 in 2001 to US$4,172 last year. Unfortunately, such a vibrant performance has not been sufficient to catch up with the country’s growing labour force. Indeed, the number of employed increased by 936,000 (or 4.7% year on year) in the last 12 months — a decent improvement, especially considering employment contraction in the agriculture sector. However, given 856,000 new entrants to the labour market, the unemployment rate improved only a little, from 12.4% in the first quarter of 2004 to 11.7% this year.
Turkey has enjoyed an impressive macroeconomic turnaround in the past four years, with accelerating economic growth and declining inflation rates, which has raised per capita income from US$2,160 in 2001 to US$4,172 last year. Unfortunately, such a vibrant performance has not been sufficient to catch up with the country’s growing labour force. Indeed, the number of employed increased by 936,000 (or 4.7% year on year) in the last 12 months — a decent improvement, especially considering employment contraction in the agriculture sector. However, given 856,000 new entrants to the labour market, the unemployment rate improved only a little, from 12.4% in the first quarter of 2004 to 11.7% this year.
A Tale of Two Currencies
This isn't the first time I've used this title, and it won't be the last. It gives the best description I can offer of where the Atlantic economies lie. Both currencies have inherent weaknesses, and the battle of the Titans is to see who can go down first. Since we are still governed by the ground rules of Bretton Woods I (with a Chinese subsystem called Bretton Woods II) there seems to be little alternative to this unedifying spectacle.
Alan Greenspan may have helped push the euro down a little yesterday, but I still don't see how he can keep to his promise of a slow and measured rate rise (or how people can believe him). He is trapped between China's strength and Europe's weakness. If he keeps raising slowly, then he will simply push the dollar up (the rates difference with Europe is significant), ballon further the CA deficit, and probably import deflation to boot. If he wants to raise then he would need to do something substantial, something which would so weaken demand in the US that demand for imports would be hit, but this would lead to recession, and maybe debt deflation. So it is probably out. He is therefore reduced to listening to Trichet, and acting accordingly. Even the US economy isn't too big to be driven by global forces, and the Feds room for manoeuvre limited accordingly.
Alan Greenspan may have helped push the euro down a little yesterday, but I still don't see how he can keep to his promise of a slow and measured rate rise (or how people can believe him). He is trapped between China's strength and Europe's weakness. If he keeps raising slowly, then he will simply push the dollar up (the rates difference with Europe is significant), ballon further the CA deficit, and probably import deflation to boot. If he wants to raise then he would need to do something substantial, something which would so weaken demand in the US that demand for imports would be hit, but this would lead to recession, and maybe debt deflation. So it is probably out. He is therefore reduced to listening to Trichet, and acting accordingly. Even the US economy isn't too big to be driven by global forces, and the Feds room for manoeuvre limited accordingly.
Doubts Grow Over UK Economy
As the BoE holds rates constant, doubts continue to grow over the path of the UK economy. The evidence is piling up that housing prices have started to fall:
"House prices fell in May but the market remains flat, according to figures out today. The Halifax revealed a 0.6% fall in prices over the month, and said that so far in 2005 prices have dropped by 0.1%. Prices are still up on May 2004, but the year-on-year increase of 5.7% is the lowest in four years and well down on last July's figure of 22.1%. And annual price inflation is expected to fall further over the coming months. The house price index shows that the market is operating in a narrow band with prices hardly moving this year. Prices have moved by just 0.1 percentage point since the start of 2005 and in the last six months three price rises have been matched by three price falls.The Halifax reported that the average house price now stands at £162,411, down from £163,458 in April, but still more than five times the average salary."
These figures are broadly in line with data reported by Nationwide Building Society last week, which showed prices rose by 0.3% during May, while annual house price inflation slowed to just 5.5% - the smallest annual increase since August 1996. Meantime the NIESR has published its annual report on the state of the UK economy:
"Consumer spending growth will slow to a below-trend rate of 1.9 per cent a year in 2005 and 2006 as households respond to the downturn in the housing market by saving more. The savings ratio is forecast to rise from 5.6 per cent of disposable income in 2004 to 6.9 per cent in 2006. An improvement in net trade will mitigate the impact of the consumer slowdown on the economy. GDP growth will slow from 3.1 per cent in 2004 to an annual rate of 2.7 per cent – a little above trend – in 2005 and 2006. The main risk to this forecast will arise if market pressures to reduce the US current account deficit lead to an abrupt slowdown in the American economy."
This forecast has, IMHO, significant downside risks, if the housing market continues to move down, consumption will undoubtedly be hit. The UK could in fact prove to be an important 'test pad' which will give some indication of what might happen in the US when the housing market there slows.
Update: I see that Barry the 'Big Picture' has posted something . more or less along the same lines as what I am saying here.
"House prices fell in May but the market remains flat, according to figures out today. The Halifax revealed a 0.6% fall in prices over the month, and said that so far in 2005 prices have dropped by 0.1%. Prices are still up on May 2004, but the year-on-year increase of 5.7% is the lowest in four years and well down on last July's figure of 22.1%. And annual price inflation is expected to fall further over the coming months. The house price index shows that the market is operating in a narrow band with prices hardly moving this year. Prices have moved by just 0.1 percentage point since the start of 2005 and in the last six months three price rises have been matched by three price falls.The Halifax reported that the average house price now stands at £162,411, down from £163,458 in April, but still more than five times the average salary."
These figures are broadly in line with data reported by Nationwide Building Society last week, which showed prices rose by 0.3% during May, while annual house price inflation slowed to just 5.5% - the smallest annual increase since August 1996. Meantime the NIESR has published its annual report on the state of the UK economy:
"Consumer spending growth will slow to a below-trend rate of 1.9 per cent a year in 2005 and 2006 as households respond to the downturn in the housing market by saving more. The savings ratio is forecast to rise from 5.6 per cent of disposable income in 2004 to 6.9 per cent in 2006. An improvement in net trade will mitigate the impact of the consumer slowdown on the economy. GDP growth will slow from 3.1 per cent in 2004 to an annual rate of 2.7 per cent – a little above trend – in 2005 and 2006. The main risk to this forecast will arise if market pressures to reduce the US current account deficit lead to an abrupt slowdown in the American economy."
This forecast has, IMHO, significant downside risks, if the housing market continues to move down, consumption will undoubtedly be hit. The UK could in fact prove to be an important 'test pad' which will give some indication of what might happen in the US when the housing market there slows.
Update: I see that Barry the 'Big Picture' has posted something . more or less along the same lines as what I am saying here.
The Shape Of Things To Come?
Italy is officially in recession:
Italian first quarter GDP fell 0.5 percent from the previous three months and shrank 0.2 percent year-on-year, the statistics institute ISTAT reported on Friday, confirming its preliminary estimate issued on May 12.
The 0.5 percent quarterly fall was the worst since Q4 1998, whilst the 0.2 percent drop on a yearly basis was the worst since Q1 1997.
As in the previous quarter, the q/q result was hit by weak exports, which declined 4.1 percent. Net exports subtracted 0.5 percentage points from q/q growth and 1.3 percentage points from y/y growth.
Consumer spending rose by 0.1 percent q/q and 0.2 percent y/y, while gross fixed investment fell by 0.1 percent q/q and 0.2 percent y/y.
Meantime industrial production in India continues to grow nicely:
India's industrial output rose 8.8 percent in April compared with a year earlier, helped by robust growth in manufacturing, data from the Central Statistical Organisation showed on Friday. Year-on-year growth in March was revised up to 8.78 percent.
India's industrial output is a key source of growth in Asia's fourth-largest economy and has been rising since a bumper monsoon in 2003 boosted farm output and rural incomes.
Manufacturing production, representing more than 75 percent of industrial output, rose 10.0 percent in April from last year.
Production of consumer goods was 18.6 percent higher in April than a year earlier after a rise of 7.5 percent in March. Production of capital goods was up 24.5 percent in April.
A strong manufacturing sector pushed economic growth to 8.5 percent in the fiscal year ended March 2004, the strongest expansion in nearly 15 years. Growth in 2004/05 is expected to have been 6.9 percent, and the central bank is projecting expansion of 7.0 percent in the current financial year.
I think it would be a mistake to think that this decade's big story is only about China. The other interesting issue is that these differing growth paths are not cyclical, they are secular and structural. One part of the world is in decline, and the other is waking up.
Italian first quarter GDP fell 0.5 percent from the previous three months and shrank 0.2 percent year-on-year, the statistics institute ISTAT reported on Friday, confirming its preliminary estimate issued on May 12.
The 0.5 percent quarterly fall was the worst since Q4 1998, whilst the 0.2 percent drop on a yearly basis was the worst since Q1 1997.
As in the previous quarter, the q/q result was hit by weak exports, which declined 4.1 percent. Net exports subtracted 0.5 percentage points from q/q growth and 1.3 percentage points from y/y growth.
Consumer spending rose by 0.1 percent q/q and 0.2 percent y/y, while gross fixed investment fell by 0.1 percent q/q and 0.2 percent y/y.
Meantime industrial production in India continues to grow nicely:
India's industrial output rose 8.8 percent in April compared with a year earlier, helped by robust growth in manufacturing, data from the Central Statistical Organisation showed on Friday. Year-on-year growth in March was revised up to 8.78 percent.
India's industrial output is a key source of growth in Asia's fourth-largest economy and has been rising since a bumper monsoon in 2003 boosted farm output and rural incomes.
Manufacturing production, representing more than 75 percent of industrial output, rose 10.0 percent in April from last year.
Production of consumer goods was 18.6 percent higher in April than a year earlier after a rise of 7.5 percent in March. Production of capital goods was up 24.5 percent in April.
A strong manufacturing sector pushed economic growth to 8.5 percent in the fiscal year ended March 2004, the strongest expansion in nearly 15 years. Growth in 2004/05 is expected to have been 6.9 percent, and the central bank is projecting expansion of 7.0 percent in the current financial year.
I think it would be a mistake to think that this decade's big story is only about China. The other interesting issue is that these differing growth paths are not cyclical, they are secular and structural. One part of the world is in decline, and the other is waking up.
Wednesday, June 08, 2005
Bolivia In Crisis
I'm obviously enjoying myself with photos these days :)
The situation in Bolivia seems to get more complicated by the day.
Publius Pundit is covering the blogging side. Eduardo Alvarez is giving a good running commentary, Miguel Centellas worries about his mum and other issues from the comparative safety of the United States, and Nick Buxton has photos and good narrative description of the anecdotal details. And a good reflective analysis of what is going on comes from Miguel Buitrago at Mabb.
The situation in Bolivia seems to get more complicated by the day.
Publius Pundit is covering the blogging side. Eduardo Alvarez is giving a good running commentary, Miguel Centellas worries about his mum and other issues from the comparative safety of the United States, and Nick Buxton has photos and good narrative description of the anecdotal details. And a good reflective analysis of what is going on comes from Miguel Buitrago at Mabb.
Mr Lira
If EU President Jean-Claude Junker is Mr Euro, then Lega Nord Italian Minister Roberto Maroni is undoubtedly Mr Lira. (See here, here, here, and here.
Meantime MS's Eric Chaney may not have really grasped what this crowd may really be thinking about:
"Obviously, the political space has its own laws, which are not necessarily the same as the economic space. However, the economic stake is so huge that, ultimately, politicians aiming at ruling the country and its economy cannot ignore it".
I have my doubts, are these guys interested in running a stable country, or would they rather prefer the kind of windfall profits they personally could make from dragging it to ruin?
Meantime MS's Eric Chaney may not have really grasped what this crowd may really be thinking about:
"Obviously, the political space has its own laws, which are not necessarily the same as the economic space. However, the economic stake is so huge that, ultimately, politicians aiming at ruling the country and its economy cannot ignore it".
I have my doubts, are these guys interested in running a stable country, or would they rather prefer the kind of windfall profits they personally could make from dragging it to ruin?
Monday, June 06, 2005
State of Play With The Chinese Economy
Oxford Analytica had a reasonable piece in Forbes recently. I pretty much agree with what they argue:
However, there is more of a risk that the enormous over-capacity built up over the last three years of breakneck investment growth will spark a return to deflationary pressure sometime next year.
A short-term consequence of the current combination of excess industrial capacity and declining domestic demand will exert further upward pressure on the trade surplus, as manufacturers seek to clear inventories by exporting what they cannot sell at home. One sector where this effect is almost certain to show up is steel. China is likely to add 65 million tons of new steel capacity this year, while domestic steel demand on current trends is likely to rise by only 30 million tons......
The implications of this are that a modest revaluation of the renminbi--by say 5% to 10%--would have no impact on the trade surplus, which is determined by two structural factors: a surplus of domestic savings over investment and industrial overcapacity.
As the government tries to head off overcapacity by restraining investment, the savings surplus--and hence the trade surplus--will increase. Any renminbi revaluation large enough to counteract these forces--40% is a minimum estimate--would probably plunge the economy into serious deflation. Beijing will not take such a dramatic step. Instead, it is likely to pursue greater exchange rate flexibility by switching to a trade-weighted basket peg within the next six to 18 months in an effort to minimize the shift in the yuan-dollar exchange rate.
The short-term consequences as the economy comes off the top of its investment-driven business cycle and moves toward a position of substantial overcapacity will be a continued slowdown in investment growth, a modest rise in consumer-price inflation and a tripling of the trade surplus as the economy relies more on external sources of demand. Next year, inflation could give way to deflation, and the trade surplus will continue to grow as manufacturers try to clear inventories by exporting. However, Beijing is unlikely to bow to pressure to substantially revalue its currency, preferring a more modest move in the direction of exchange rate flexibility.
However, there is more of a risk that the enormous over-capacity built up over the last three years of breakneck investment growth will spark a return to deflationary pressure sometime next year.
A short-term consequence of the current combination of excess industrial capacity and declining domestic demand will exert further upward pressure on the trade surplus, as manufacturers seek to clear inventories by exporting what they cannot sell at home. One sector where this effect is almost certain to show up is steel. China is likely to add 65 million tons of new steel capacity this year, while domestic steel demand on current trends is likely to rise by only 30 million tons......
The implications of this are that a modest revaluation of the renminbi--by say 5% to 10%--would have no impact on the trade surplus, which is determined by two structural factors: a surplus of domestic savings over investment and industrial overcapacity.
As the government tries to head off overcapacity by restraining investment, the savings surplus--and hence the trade surplus--will increase. Any renminbi revaluation large enough to counteract these forces--40% is a minimum estimate--would probably plunge the economy into serious deflation. Beijing will not take such a dramatic step. Instead, it is likely to pursue greater exchange rate flexibility by switching to a trade-weighted basket peg within the next six to 18 months in an effort to minimize the shift in the yuan-dollar exchange rate.
The short-term consequences as the economy comes off the top of its investment-driven business cycle and moves toward a position of substantial overcapacity will be a continued slowdown in investment growth, a modest rise in consumer-price inflation and a tripling of the trade surplus as the economy relies more on external sources of demand. Next year, inflation could give way to deflation, and the trade surplus will continue to grow as manufacturers try to clear inventories by exporting. However, Beijing is unlikely to bow to pressure to substantially revalue its currency, preferring a more modest move in the direction of exchange rate flexibility.
MachineTranslation
I don't know why, but like many others, I simply can't resist this photo.
What is it, well I found this in Brad's comments thread:
OK, according to artweld.blogs.com
What you see in that picture is ‘Bagger 288?, the world’s biggest bucket-wheel excavator, crossing the Federal highway 55, en route to Garzweiler in Germany.
Bagger 288 was build by Krupp and is owned by RWE Germany and it’s part of a fleet of 21. They use it for open cask lignite mining. The German word ‘Bagger’ means excavator or digger. It’s about 96 meters high and 240 meters long, has a weight of 13500 tons, it’s top speed is 10 meters a minute, and it is operated by just 5 people. /end quote/
There, it's a big open-pit coal mining rig.
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